Thinking about the properties of Bitcoin

Source: Daoshuo Blockchain

Whether in the crypto ecosystem or the non-crypto ecosystem, people who hold firm beliefs in Bitcoin (including us, of course) have long believed that Bitcoin is "digital gold".

I have never doubted this view.

But over the years, the increasingly similar trends of Bitcoin and US stocks and the increasingly divergent trends of gold have made me begin to doubt this view.

Because if Bitcoin is really "digital gold" as we imagine, then after so many years, the group has expanded so much, and the holders have gone from a very small number of geeks in the early years to more and more popular institutional investors now. Its consensus has become much stronger, and people's belief in it has become much stronger. Under this reinforcement, it should behave more and more like gold.

But if we think carefully about the performance of Bitcoin in recent years, we can find that it is not actually behaving more and more like gold.

A typical manifestation of gold is that when the world becomes increasingly chaotic and people's confidence in legal tender (especially the US dollar) or the existing financial system becomes increasingly fragile, people will embrace gold and abandon legal tender.

If we go back to history not too long ago, we can see this effect of gold more clearly.

Before the collapse of the Bretton Woods system, legal tenders around the world were anchored to the US dollar, and the US dollar was anchored to gold. In the earlier industrial revolution period, the British pound and the legal tenders of many capitalist developed countries around the world were directly anchored to gold, which is the gold standard we are familiar with.

In those times, all values ​​were ultimately measured in gold.

If the Bretton Woods system and the gold standard are too unfamiliar to us, then let's take a look at the description of the financial situation of the Nationalist government in the last two years of the mainland in history books:

The excessive issuance of gold yuan coupons and silver dollar coupons completely lost the credibility of legal tender, and people only used gold in large transactions. "Yellow fish" was the nickname people gave to gold at that time.

In the 5,000-year history of mankind, gold has played this role most of the time. In most periods, whether it is a country or an individual, the ultimate form of measuring their wealth is how much gold they own.

Has the evolution and development of Bitcoin achieved this effect? ​​Or will we increasingly agree that when people lose confidence in legal currency and the existing financial system, they will embrace Bitcoin and use the Bitcoin standard to measure their wealth?

We may say so, but what we say is often not as honest as actual actions.

If we have a Bitcoin in our hands, the market price of this Bitcoin was $100,000 yesterday, but today the market plummeted and the market price is only $50,000. At this time, if we trust Bitcoin more or use the Bitcoin standard to measure our wealth, we should be calm and not care.

But I believe that 95% of the holders will probably beat their chests and regret, "If only I had sold it yesterday."

This is actually trusting the US dollar more and measuring one's wealth with the US dollar standard.

Let's use another historical scenario to imagine what would happen if this scenario happened to gold:

One day in 1948, in Shanghai, a yellow croaker could be exchanged for 1 million gold yuan coupons yesterday, but today a yellow croaker can only be exchanged for 500,000 gold yuan coupons. At this time, would the people of Shanghai do everything possible to speed up the exchange of the gold yuan coupons in their hands for yellow croakers, or would they regret and say "If only the yellow croakers were sold yesterday"?

I think the answer is self-evident. Who dares to believe in gold yuan coupons?

With this comparison, I think the difference between Bitcoin and gold can be seen more clearly.

In fact, in the early days of Bitcoin, those idealistic geeks believed in Bitcoin more, and they were more willing to use Bitcoin as the standard to measure their crypto assets. On the contrary, as crypto assets have developed to the present, when more and more people and institutions have entered this ecosystem, more and more holders believe in US dollar stablecoins more and are more willing to use US dollars (stablecoins) to measure their crypto assets.

Of course, we often see some people claiming how many bitcoins they hold, but in my opinion this does not mean that they trust bitcoin more or use bitcoin to measure their assets, but rather that they believe more in the dollar value of bitcoin after it is converted into dollars, and they care more about how much their bitcoin is worth in dollars. Here, Bitcoin is a wealth target just like real estate.

It took 5,000 years for gold to establish its financial and monetary attributes in history and in people's hearts, but Bitcoin does not have such a history.

Without the torture and tempering of history, at least it is difficult to say that Bitcoin is like gold now.

There is also a view that Bitcoin is a hedge against the real world.

But if we carefully review the discovery of Bitcoin during crises in real life over the years, we will find that in the early years, some people used Bitcoin as a hedge. For example, when the financial crisis occurred in Cyprus, part of the funds poured into Bitcoin. But now, when people lose confidence in the real world (such as the collapse of the US stock market), more and more people and institutions seem to not buy more Bitcoin to hedge this risk, but to exchange Bitcoin for stablecoins or simply for US dollars to avoid the current risk.

Such behavior does not seem to be a hedge against the crisis in the real world.

So what are the properties of Bitcoin?

I think it is more like a special collectible in the digital age, a collectible that is endowed with special meaning.

It is not like gold, and it is far-fetched to say that it is a "store of value".

Qi Baishi's paintings are also limited. They are very valuable and worth a lot of money, but we say it is a collectible, not "XX gold", nor will we say it is a "store of value".

For those paintings, we know:

When the economy is booming and the rich dare to spend money lavishly, their prices will soar.

But when the economy is sluggish and the rich start to calculate, their prices will slump.

"Collections in prosperous times, gold in troubled times", those paintings are collections of prosperous times.

In this respect, Bitcoin is also very similar:

When the US stock market soars and institutions dare to spend money generously, the price of Bitcoin will soar.

When the US stock market is sluggish and institutions begin to calculate, the price of Bitcoin will be sluggish.

The linkage effect between Bitcoin and the US stock market (economy) is more like the linkage effect between collectibles and the economy.

So Bitcoin is more like a collectible to some extent, a collectible whose value is given another meaning. Although it cannot be appreciated, its history, its special technology, and the historical background of its birth all give it characteristics that other collectibles do not have.

If this is the case, then its future trend will either rely strongly on the performance of the US stock market (US economy) or rely strongly on the development of the encrypted ecological economy; it is unlikely to play the role of hedging risks like gold.